On Wednesday 22 November 2017, the UK Chancellor of the Exchequer, Phillip Hammond gave the first November Budget for 21 years. Previously there was an Autumn Statement at this time of year, with a Budget in March, but these have reversed with a Spring Statement now preceding the Budget speech.
A lot has happened since the last budget on 8 March 2017, including Article 50 being triggered to formally start the process of the UK withdrawing from the European Union. The Conservative Party also lost their majority in the June general election, but remained in power as a minority government, having secured a confidence and supply deal with the DUP in Northern Ireland.
Set out below are the main changes in the UK Autumn Budget that will impact international clients.
Gains made by non-UK residents on immovable property
A consultation document has been issued on taxing gains made by a non-UK resident on immovable property:
From April 2019 the Government plans to tax gains made by non-residents on disposals of all types of UK immovable property, extending existing rules that currently apply only to residential property. The new rules will also apply to gains realised by 'widely' held entities.
The UK does not currently tax non-residents disposing of non-residential property such as offices, factories, warehouses, shops, hotels, leisure facilities, and agricultural land located in the UK. The UK also does not currently tax widely-held non-resident companies on disposals of interests in residential land.
The proposals also look to tax gains realised on the shares of 'property rich' entities.
Furthermore there is an anti-forestalling rule that will apply to treaty shopping arrangements entered into on or after 22 November 2017 which seek to avoid the changes.
The proposed changes aim to align the tax treatment of non-UK resident owners of UK immovable property with that of UK residents. The proposed rebasing of property and shares to April 2019 values will mitigate any immediate impact.
Non-resident companies' UK property income and gains
The UK rental income of non-resident corporate landlords is currently chargeable to UK tax under the Income Tax regime, but the Government proposes to move income from UK property into the Corporation Tax ("CT") regime. The policy will include bringing capital gains realised by non-resident companies on UK properties within the CT regime at the same time.
A consultation and draft legislation will be issued in the summer of 2018 with a proposed effective date of 6 April 2020.
Removal of Indexation Allowance on Chargeable Gains
Companies can currently benefit from an indexation allowance on gains. However, this will be removed as from 1 January 2018, although relief will still be available for indexation arising up to 31 December 2017.
Extending offshore time limits
Assessment time limits for non-deliberate offshore tax non-compliance will be extended so that HMRC can always assess at least 12 years of back taxes without needing to establish deliberate non-compliance. There will be a consultation in Spring 2018.
There were no further changes announced. It is worth noting that the Finance (No. 2) Act 2017 was enacted on 16 November 2017.
The proposed changes to the taxation of non-UK domiciled individuals ("non-doms") are therefore now in force and are retrospectively applied from 6 April 2017.
This means non-doms who have lived in the UK for 15 of the last 20 tax years will be deemed UK domicile for Income Tax, Capital Gains Tax and Inheritance Tax.
Additionally, non-dom individuals who were born in the UK and who had a UK domicile of origin will revert to their UK domiciled status for tax purposes whilst resident in the UK.
In 2018-19 the personal allowance will increase to £11,850 (from £11,500) and the higher rate threshold will increase to £46,350 (from £45,000).
Stamp Duty Land Tax on residential property
There is a new 0% rate of Stamp Duty Land Tax ("SDLT") for first-time buyers on the first £300,000 of a purchase, where the total price paid for the property does not exceed £500,000. If the purchase price is more than £500,000 the normal SDLT rates will be charged.
The main changes in the Budget for international clients are the changes to the taxation of gains on property.
UK tax planning and mitigation in relation to UK residential and commercial property investment has been under attack for many years now with ATED, SDLT, NRCGT and IHT changes. The new proposed changes will again further impact on the tax costs of UK property investments. The immediate impact will be mitigated due to the rebasing, but longer term the increased complexity and tax cost of investing in UK property is likely to reduce its attractiveness for foreign investors and therefore its value.
If you have any questions on the 2017 UK Autumn Budget or any other tax matters, please contact your usual SMP adviser or one of the contacts below.
Tel: +44 1624 683262
Tel: +44 1624 683254
Tel: +44 1624 682267